Population and Economic Growth Essay

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1001-04
25 November 2016

Population and Economic Growth

The debate between positive and negative sides of population growth is ongoing. Population growth enlarges labour force and, therefore, increases economic growth. A large population also provides a large domestic market for the economy. Moreover, population growth encourages competition, which induces technological advancements and innovations. Nevertheless, a large population growth is not only associated with food problem but also imposes constraints on the development of savings, foreign exchange and human resources.

Generally, there is no consensus whether population growth is beneficial or detrimental to economic growth in developing economies. Moreover, empirical evidence on the matter for developing economies is relatively limited (Savas, 2008). According to Population ‘revisionist’ economists, population growth acts as an indispensable constituent for stimulating economic development because a sizeable population provides the required consumer demand to generate favorable economies of scale in production, lower production costs, and provide a sufficient and low-cost labor supply to achieve higher output levels (Todaro 1995, p. 03).

Johnson (1999) pointed out that a high rate of economic growth is associated with high population growth and low economic growth is associated with low population growth. The issue of population and economic growth is as old as the discipline ofeconomics itself. The debate on the relationship between population andeconomic growth could be traced back to 1798 when Thomas Malthus published the book An Essay on the Principle of Population.

Malthus claimed that there is a tendency for the population growth rate to surpass the production growth rate because population increases at a geometrical rate while production increases at an arithmetic rate. Thus, the unfettered population growth in a country could plunge it into acute poverty. However, the pessimist view has proven unfounded for developed economies in that they managed to achieve a high level of economic growth and thus, both population and the real gross domestic product (GDP)per capita were able to increase (Savas, 2008).

Similarly, many of the empirical studies that claimedthat a rapid population growth impeded economicdevelopment could not be considered reliable. This isbecause the statistical correlation between populationexpansion and economic growth has not addressed thecausal relationship between the two (Repetto, 1985). The nature, direction and pattern of the causal relationship between population growth and economic growth has been the subject of very old debate among economists, demographers, policy-makers and researchers which is an open issue in development economics.

Even though the nexus between population development and economic development has received extensive attention in the earlier period, it seems a stylized reality that it is hard to obtain a robust effect of population on economic development today. Despite the fact that there are abundant research studies on the relationship between population and economic development, there is no universal consensus as to whether population expansion is beneficial or detrimental to economic growth. (SarbapriyaandIshita, 2012).

Population and Economic Growth The debate on the relationship between population and economic growth could be traced back to Malthus. According to Malthus, population tends to grow geometrically, whereas food supplies grow only arithmetically. According to the Malthusian model, the causation goes in both directions. Higher economic growth increases population by stimulating earlier marriages and higher birth rates, and by cutting down mortality from malnutrition and other factors. On the other hand, higher population also depresses economic growth through diminishing returns.

This dynamic interaction between population and economic growth is the centre of the Malthusian model, which implies a stationary population in the long-run equilibrium. Malthus’s concern created quite a stir in the early nineteenth century England, leading to widespread calls for restraints on population growth. Still, the English population expanded quite rapidly throughout the nineteenth century, but by most evidence real income rose and the spectre of mass starvation declined(Sarbapriya and Ishita, 2012).

One of the stylized facts about population in all contemporary developed nations is that over the past couple of centuries it has passed through three stages (i. e. , demographic transition). The first stage is characterized by high birth rates and high death rates, resulting in a slow population growth. In thesecond stage there was a decrease in death rates, however the birth rates remained high as a consequence of increases in population. Finally, in the third stage, fertility rates fell and combined with low mortality rates resulted in very low or no population growth.

The usual explanations for the time evolution of population relies generally on the idea that the improvement of economic conditions – which includes massive improvements in public health – led first to a reduction in the mortality rates, and finally to a decrease in the birth rates. As income per capita is a good proxy for economic conditions because it reflects, among other things, the impact of technology, education and health, the usual explanations therefore suggest that there is a strong link between per capita income and population.

Indeed, the main theories put forward by economists to explain the evolution of population relates it to per capita income not aggregate output. This implies that there is a direct relation between per capita income and population size, an increase in income per capita leads to an increase in the size of population ((Sarbapriya and Ishita, 2012) The relationship between population and economicgrowth is complex and the empirical evidence is ambiguous, particularly concerning the causes and impacts3. It can be demonstrated in a theoretical model that a large population growth could have both negative and positive impacts on productivity4.

A large population may reduce productivity because of diminishing returns to more intensive use of land and other natural resources. Conversely, a large population could encourage greater specialization, and a large market increases returns to human capital and knowledge. Thus, the net relationship between greater population and economic growth depends on whether the inducements to human capital and expansion of knowledge are stronger than diminishing returns to natural resources. Therefore, it is important to examine the population and economic growth nexus (Savas, 2008).